ABC analysis

Definition

Analysis of a range of items which have different levels of significance and should be handled or controlled differently. It is a form of Pareto analysis in which the items (such as activities, customers, documents, inventory items, sales territories) are grouped into three categories (A, B, and C) in order of their estimated importance. 'A' items are very important, 'B' items are important, 'C' items are marginally important. For example, the best customers (typically 20 percent of the total number of customers) who yield highest revenue (typically 80 percent of the total revenue) are given the 'A' rating, are usually serviced by the sales manager, and receive most attention. 'B' and 'C' customers warrant progressively less attention and are serviced accordingly.